RBM to assess banks’ capital adequacy

The Reserve Bank of Malawi (RBM) says it will be obliged to assess the overall capital adequacy of the country’s 12 banks through a comprehensive evaluation that will take into account regulatory minimum capital requirements.

The RBM will also evaluate the quality and results of Internal Capital Adequacy Assessment Process (Icaap), risk management processes, control systems and risk profiles as the deadline for the implementation of Basel II in 2014 approaches.

RBM’s chief examiner for bank supervision department Fund Mzama said this on Wednesday in Mangochi at the opening of the Icaap and stress testing workshop for senior bank officials and internal auditors as the country’s banks move towards implementing Base II—recommendations on banking laws and regulations issued by the Basel committee on bank regulations.

The workshop, the second in a series the central bank is holding, is being facilitated by Bianca Ruddy and Annelize Snyman from an internal auditing firm KPMG South Africa.

Mzama said Basel II implementation is a challenge for most economies such as Malawi, but added it is pleasing that the country’s banks, regardless of their sizes, are committed to its implementation come 2014 as evidenced by their preparedness.

“Icaap and stress testing are important tenets of pillar two of the Basel II accord. Pillar two requires each bank to develop Icaap framework that sets capital targets that are commensurate with the bank’s risk profiles and control environment,” he said.

Mzama applauded banks that have developed and submitted their Icaap documents to RBM, adding that the central bank will soon be engaging the banks on the Icaap documents submitted through on-site examinations slated for first quarter [January to March] of 2013.

The RBM official said Stress Testing—an analysis designed to determine whether a bank has enough capital to withstand the impact of adverse developments—is a key risk management tool in banks.

Mzama said supervisory review process under Basel II, pillar two requires banks to take a forward-looking view in their risk management, strategic and capital planning and one of the tools banks can use to facilitate this is stress testing

He urged the banks to have quality and comprehensive data and also enhance data clean-up efforts and improve their databases.

The RBM has settled on a consultative approach with all players in the banking sector on the implementation of Basel II and has set up a Basel II National Steering Committee (NSC) and various Subcommittees.